Report of the 16th Finance Commission for 2026-31

The 15th Finance Commission made recommendations to promote better fiscal discipline, education, and agriculture reforms, while adjusting tax devolution among states. ✅ Statement I: Correct 4,800 crores were recommended (2022–23 to 2025–26) to incentivize states for improving educational outcomes. ❌ Statement II: Incorrect The Commission recommended 41% of Union taxes to be shared with states, not 45%. ✅ Statement III: Correct It proposed a ₹45,000 crore performance-based incentive for states to implement agricultural reforms. ✅ Statement IV: Correct It reintroduced the 'tax effort' criterion, rewarding states that better mobilize revenue in relation to their GSDP.

Based on principles of need, equity and performance, overall devolution formula is as given in the chart:

The answer is (D) tax imposed and collected by the State Government is correct. In India, sales tax has been replaced by the Goods and Services Tax (GST). However, before the implementation of GST, sales tax was levied by individual states in India. While there might have been some central guidelines, the power to impose and collect sales tax primarily rested with the state governments.

Statement 1 is correct. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report indeed recommended a debt-to-GDP ratio of 60% for the general (combined) government by 2023, with 40% for the Central Government and 20% for the State Governments. This recommendation aimed to ensure fiscal discipline and sustainability. Statement 2 is not correct. The Central Government has domestic liabilities of 46.1% of GDP (2016-17) and as a percentage of GDP, States liabilities increased to 23.2 per cent at end-March 2016. Statement 3 is correct. The Constitution of India empowers State Governments to borrow only from domestic sources (Article 293(1)). Further, as long as a State has outstanding borrowings from the Central Government, it is required to obtain the Central Government's prior approval before incurring debt (Article 293 (3)).

Statement 1 is Correct: The Fourteenth Finance Commission indeed increased the devolution of tax revenue from the central government to the states. Statement 2 is Incorrect: While promoting formula-based devolution, the commission does not provide recommendations regarding sector-specific grants to ensure focus on critical areas.

Statement 1 is incorrect. Urban Cooperative Banks (UCBs) are not solely regulated by State Governments. They are jointly regulated by the Reserve Bank of India (RBI) and the respective State Governments. In 2020, the Banking Regulation (Amendment) Act, 2020 gave RBI more control over UCBs, bringing them largely under its regulatory framework for financial stability. Statement 2 is correct. As per the Banking Regulation (Amendment) Act, 2020, Urban Cooperative Banks can raise funds by issuing equity shares, preference shares, and unsecured debentures with RBI approval. This allows UCBs to strengthen their capital base and improve financial health. Statement 3 is correct. Initially, cooperative banks were regulated under state laws. In 1966, an amendment to the Banking Regulation Act, 1949, brought Urban Cooperative Banks (UCBs) under RBI's purview for banking-related functions. However, their management and administrative aspects remained under state cooperative laws.

Option A is correct. In a federal system, power is distributed between the central government and the states. There can be disputes about the division of power or interpretation of the Constitution.
An independent judiciary acts as an impartial umpire to settle these disputes and uphold the Constitution. It ensures that both the central government and the states function within their constitutional boundaries.The other options, while relevant to Indian polity, are not exclusive to federal systems Option B is incorrect. The Union Legislature having elected representatives from constituent units is a common feature in both federal and some unitary states with devolved power. Option C is incorrect. The Union Cabinet having elected representatives from regional parties is not a defining characteristic of federalism. Political party affiliation doesn't necessarily determine the federal structure. Option D is incorrect. The Fundamental Rights being enforceable by Courts of Law, while essential for a democracy, this feature exists even in some non-federal states.

Statement I is Correct: Any change in the Union List alters the distribution of legislative powers and requires ratification by at least half of the State Legislatures. Statement II is Correct: Changes affecting the extent of a State’s executive power also need ratification by not less than one-half of the States. Statement III is Incorrect: Conditions of the Governor’s office can be amended by Parliament alone and do not require ratification by States.

The Sarkaria Commission was established by the Government of India in 1983 to review Centre-State relations and recommend improvements. One of its key areas of focus was the appointment of Governors. Recommendations on the Appointment of Governor: - The Governor should be an eminent person with a distinguished record in public life. - The person must be from outside the State to ensure impartiality in administration. - The Governor should not have participated in active politics for some time prior to the appointment. - He should be a detached figure, not closely linked to local politics, to maintain neutrality. - The appointment process should involve wider consultation, including the Chief Minister of the State, the Vice President of India, and the Speaker of the Lok Sabha. These recommendations were aimed at ensuring that the Governor functions as an independent and neutral constitutional authority, rather than a political appointee of the ruling party at the Centre.

The Constitution outlines specific roles where the Governor can act at his/her own discretion, but it does not allow the President to unilaterally intervene in State legislation without the Governor's involvement. ✅ Statement I: Correct
* The Governor can act in discretion in certain cases (e.g., reserving a bill for the President under Article 200, or appointing a CM in a hung assembly).
* Article 163(2) makes the Governor’s discretion final in such matters. ❌ Statement II: Incorrect
* The President cannot suo motu reserve a State bill. Only the Governor can do this under Article 200.